Over the years, financial institutions, that provide loans or lines of credit to individuals and business entities, have developed sophisticated systems to manage risk. Models and mathematical formulas have long been tools of the industry for developing an approximation of risk when evaluating customers in consideration for loans and lines of credit. Credit reporting agencies such as Experian™ of Costa Mesa Calif., Equifax™ of Atlanta Ga. and TransUnion™ of Chicago Ill. provide financial institutions with reports reflecting an individual's or business' historical payment data. A credit report is usually the first consideration in evaluating a customer's credit worthiness and most often is the determining factor in whether or not a loan is issued or a line of credit with a credit limit is issued.
A financial institution may also consider other factors in addition to a credit report to determine if a customer is able or likely to repay a loan or money borrowed against a line of credit. The income of a borrower or the fiscal health of a business along with the financial obligations of the borrowing entity are often considered in conjunction with the credit report score in calculating a level of certainty that a loan will not go unpaid.
Financial institutions occasionally reevaluate a customers payment history when determining whether or not to increase a customer's credit limit. At times, a customer may request this evaluation, and at other times, the reevaluation is completed to encourage customer loyalty and maximize profit by encouraging reliable customers to borrow more. However, some corporate line of credit providers allow their client's to place individual limits on corporate cards issued to employees. For example, a client may be eligible for a $20,000 line of credit, however the client may choose to place a self-imposed credit limit at $10,000. Clients may find this desirable to help manage debt and to control spending when corporate cards are issued to employees for business related expenses.
Card members who would otherwise qualify for a higher credit limit, but have had a client-imposed credit limit, may encounter declined purchases because they have reached their client-imposed credit limit. When a card member is declined at the point of sale, they are often not aware that it is due to, for example, a client-imposed limit that has been set by a program administrator within the corporation. A declined card member may therefore assume that a problem exists with the issuer. Declines often result in embarrassment, inconvenience for the card member, and lost customer loyalty to the issuer. Declines due to client-imposed limits also represent a loss in possible revenue to the issuer of the credit line. Within the United States alone, it is not uncommon for and issuer to experience limits-based declines measured in the terms of millions of dollars, which translates to lost revenue and/or great customer dissatisfaction.
Therefore, a need exist for a system and method for creating models based on a card member's spending and decline patterns, wherein account managers and/or program administrators may determine with some certainty an optimal credit limit and recommend the same limit to card members. Further, a need exists for a system and method that may determine optimal credit limits based on two or more transaction types or categories. For example, a program administrator may choose one credit limit for travel related expenses and another limit for purchases relating to office supplies. Such a system may create optimal credit limits for individual categories based on spending and decline transactions relating to each category.